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CAD rally extends to 1.3335 as commodity prices firm

Posted on: March 04, 2016

CAD has been able to maintain its gains this week, twice rejecting a move above 1.3490, each time recovering back to 1.3415/20 where it was this morning when us jobs data came out. US non-farms were at +242k vs +195k expected. That caused some very jerky moves, with the USD initially gaining 7versus the majors, and then abruptly reversing course. Since around 7:30 am MST it has been full on risk-on mode, with crude, metals and commodity currencies making large gains. Crude is currently at $35.70/barrel while CAD is bumping up to psychological USD support at 1.3333 (0.75 on the inverse).

The move, when looked at pure in isolation, is baffling, shouldn’t strong US job data be good for the USD? Normally yes, but I think the market is looking for signs of economic normalization, and the perception of a firmer US economy is leading to assumptions about increased demand and consequently some longer term positions that had bet on commodity weakness are being unwound. I don’t think it is purely the US story, as the news last week that China has looking to expand its fiscal stimulus is also at work.

What it means is that shorting crude is no longer a no brainer trade. For example, on Wednesday oil inventories came out much larger-than-expected, and crude finished up $1.00 on the day. I am trying not to let emotion cloud my analysis, so I am still wary of assuming that crude’s meltdown is over, but it does seem that downside momentum is fading. That should mean that CAD’s recent gains can be maintained for the time being (hard to see what will reverse things if today’s non-farms didn’t).

So the range has shifted, and I think 1.3150 to 1.3750 is likely to hold for the next month at least). I think where CAD closes today is important, closing below 1.3333 would be a strong signal for the CAD to move to 1.3150 next week. A close above 1.3333 means the next 150 points would be back to 1.3475.

I am off next week but Bennett will be here to provide colour and prices when needed. I will be back on the 14th fresh and ready to fight the good fight, but will likely take a few days to assess things before making any grandiose predictions, as this week has demonstrated the market can be extravagant in its ability to baffle and confuse the best of us.

  • Thursdays Inter-bank range: 1.3372 – 1.3472
  • Asia overnight Inter-bank range: 1.3404 – 1.3434
  • London overnight Inter-bank range: 1.3414 – 1.3449

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